Why Workers Shouldn't Just Take Money And Run

Experts Urge Caution, Warn Against Jumping At Incentives To Give Up

Job

September 02, 1991|By MICHAEL REMEZ; Courant Staff Writer

C After 22 years as an engineer, Dwight Dutton's life changed this weekend.

Taking advantage of early retirement incentives offered by his employer, ABB Combustion Engineering, Dutton worked his last day at the company Friday. His severance package will allow him to attend Yale Divinity School this fall to complete requirements to be ordained as a United Church of Christ minister.

Dutton, 54, had been planning for an eventual career change. His employer's desire to cut jobs gave him an early push -- and the financial wherewithal.

Unlike many workers trying to decide whether to take an employer's offer of early retirement or sweetened severance, Dutton knew what he wanted to do next. But, like the others, he had to make sure he could afford it.

Financial planners and other experts say giving up a longtime job for what seems like a big amount of money may sound appealing, but realities demand caution.

Hundreds of people in Connecticut are facing that decision as employers cut payrolls to survive in the slow economy.

The programs can be expensive to employers and can cause problems with the reshuffling of staff after they are completed. But they help avoid the ill will that comes with wide-scale layoffs and can help preserve a company's image in the community.

After suchan offer is made, workers eligible for the program usually must make decisions within 45 days.

For example, salaried workers at Hamilton Standard in Windsor Locks must decide this month whether to take a severance offer of lump-sum payments of up to $9,000 and one week's pay for each year of service.

Earlier this year, about 560 unionized workers at Southern New England Telecommunications Inc. took advantage of an early retirement program offered by the company. Now, management employees are considering a similar offer.

"People who get one of these offers generally have not thought about retiring," said Denise F. Loftus, a consultant with

the American Association of Retired Persons. "They have to step back and think: What are the pros and what are the cons of doing this?" That involves asking many questions of themselves, their employer and, in most cases, experts such as lawyers, accountants or financial planners.

If considering early retirement, how much money will you need each month and how much will you have coming in? Have you tapped all available resources? What will you do about health insurance? What about life insurance? What are the tax consequences of getting retirement money earlier than planned or in a lump-sum payment? Have you calculated the effects on Social Security benefits? Do you know exactly what is included in your pension plan? If considering an enhanced severance package, many of the same questions apply. Will you have enough money to carry you until you find new work? How difficult will that be in an economy weakened by recession? What other resources can you depend on? Is it realistic to assume you can get that long-dreamed of small business off the ground? "You really need to sharpen the pencil and look at it from an economic point of view," Loftus said. "But you also have to think about what you would do." Loftus said Americans tend to define themselves by their work. And giving up a steady job is often tougher than it seems.

"We have all sorts of illusions and fantasies, but people have to do something meaningful," she said. "For most people, playing golf every day doesn't cut it." And people also have to assess whether they could be laid off if they don't take the employer's offer. Hamilton Standard, for example, set a goal of cutting 700 jobs through layoffs and attrition by this month. If enough jobs are not given up voluntarily, management has said it will have to make up the difference through layoffs.

In making his decision, Dutton sought the help of Scott LeClaire, a financial planner with Heritage Financial Associates in Glastonbury. Along with Dutton's wife, they charted a financial course that showed the Granby couple would have sufficient income to make the change.

"We realized that I am moving from a profession where I may earn two to three times the amount of money I might earn as a full-time minister," Dutton said. "We have had to count the costs very carefully." LeClaire said the way to do that is to prepare a comprehensive budget and consider the effects of inflation.

"Go through the checkbook and get a feel for where you spend your dollars," LeClaire said. "Then you have to identify the various sources of income to meet those monthly expenses." Lawrence Murphy, a financial planner with Prudential Securities Inc. in Hartford, said many people who retire find they need less income than expected to live comfortably.

He has found that many people end up taking less out of their individual retirement accounts each month than originally planned. Still, Murphy agreed with LeClaire that a detailed assessment of all assets and expenses is crucial. And they said people often overlook possible sources of income.